The Federal Reserve has made no secret of its desire to tighten credit. OK, no one at the Fed would claim it wants to make borrowing more expensive. Instead, central bankers talk about removing accommodation. Over the past 15 months, the agency has hiked its short-term target interest rate three times as it works to bring the rate closer to what it considers "normal." And it has talked openly that it wants to continue.
But the bank's not likely to tighten monetary policy when it meets in the week ahead.
It has gotten slightly more expensive for some consumers to borrow money, but consumer confidence remains high. New car loans and credit card interest rates have risen slightly, while mortgage rates remain near their lowest level of the year.
Instead of action on interest rates, investors and borrowers should look for words from the Federal Reserve on Wednesday. Esther George, president of the Federal Reserve Bank of Kansas City, said two weeks ago, "I am encouraged by the start of the normalization process and want to see it continue." While she does not have a vote in this week's decision, she does have a voice.
While the bank aims to stay the course on interest rates, it increasingly has turned its attention to its balance sheet. This is Wall Street-speak for all the government and mortgage bonds the Fed bought to help support the economy in the years after the Great Recession. The central questions for the central bank are: How will it unwind those investments, and when will it start selling?
It has been cagier on this strategy than its steady-as-it-goes approach to interest rates.
Done together-and done clumsily-tightening rates and winding down the balance sheet risks spooking investors. The Fed speaking with a clear voice this week will help diminish that danger.
ABOUT THE WRITER
Financial journalist Tom Hudson hosts "The Sunshine Economy" on WLRN-FM in Miami, where he is the vice president of news. He is the former co-anchor and managing editor of "Nightly Business Report" on public television. Follow him on Twitter HudsonsView.